December 30, 2015
Mortgage rates managed to hold steady today after moving up to the highest levels in more than 5 months yesterday. Rates had moved close to current levels even before the Fed rate hike earlier this month. Since then, they've been sideways overall, with a good balance between better and worse days.
Yesterday's move higher finally upset that balance. For the first time since late November, rates are starting to look more predisposed to moving higher. There is a major caveat though. Mortgage rates are driven by the prices of mortgage-backed-securities (MBS), which are part of the broader bond market. Given the fact that bond markets often experience serendipitous volatility at the end of the year, we could take any end-of-year move with a grain of salt. That doesn't mean rates will necessarily reverse course--simply that the conclusion would be gloomier if we saw similar patterns at a different time of year.
Loan Originator Perspective
"Bonds posted a moral victory this afternoon as they overcame morning weakness following the 7 year treasury auction. A number of lenders (myself included) improved their pricing mid day, but the improvements were minimal. At the end of the day, it appears we're still treading water within recent ranges. Bond trading ends early tomorrow for New Year's, and it's unlikely pricing will be overly aggressive on a 3+ day weekend. I'll float new applications until Monday, then see where the markets take us. Happy Almost New Year!" -Ted Rood, Senior Originator
"With the round of auctions now behind us and with rates hovering around the highs of the recent range I feel the risk of floating has decreased. Bonds close tomorrow and to be honest wont do much during the New Years eve session. Trading will return to normal next week and floating till then makes a lot of sense." -Manny Gomes, Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.125-4.25%
- FHA/VA - 3.75%
- 15 YEAR FIXED - 3.25-3.375%
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 has been largely about global interest rates rising unevenly from a long-term low brought about by the onset of quantitative easing in Europe. European rates are most directly affected, but rates in the US have often taken cues for similar movement.
- As the European rate rally fizzled out, the Fed began telegraphing its intent to hike rates. While the Fed rate doesn't directly affect mortgages, the two are still loosely connected over time. They become more disconnected when the economy begins to contract. This helps longer term rates like mortgages move lower even while the Fed rate his steady or rising.
- The Fed finally hiked on December 16th, but there was no immediate reaction in mortgage rates. Some think that an economic contraction might not be too far away. Others are concerned about a lack of inflation (which is good for longer term rates like mortgages). Bottom line: the Fed rate hike has not been the death knell for low mortgage rates that many feared it would be, although the near term range is uncertain and rates could be more volatile than normal as we wait for a new trend to emerge.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).